The DWP’s consultation on DC pension charges does not give providers enough time to implement the changes and risks stifling what is currently a competitive market say providers and advisers.
The consultation on moving to a universal percentage AMC charging structure, which closes today, calls for the threshold to come into force in April 2022.
The proposals include introducing a de minimis fund of £100 below which any flat fee element of member-borne charges must be removed, for all active and deferred affected pension pots, from April 2023.
It also seeks views on whether employers would continue to pay auto-enrolment contributions to a pension chosen by an employee, as an alternative to the employer’s workplace pension.
Premier head of DC consulting and technology Sue Pemberton says: “A pot size below which flat fees cannot be charged, to protect members with small pots, is a good idea. The issue is that it will be difficult for providers to apply this charge threshold in the current timescale. At the moment the DWP intends for the threshold to come into force in April 2022 and many providers are unlikely to be able to join the dots in time.
“The problem is that some providers will be running their schemes across different platforms. An individual member could have small pots scattered across multiple platforms and it is the total pot size that needs to be measured to establish if charges should be levied. Arguably, it’s the providers who will lose out if they cannot establish if the total pot size is above the charge threshold. Getting this right will be a major, time consuming task. There is a need for speed and delaying too long could be costly, but the DWP should offer providers a transition period.
“The good news is that the consultation also represents a step towards a universal charging structure, which is an exciting development and could be hugely beneficial, especially in light of the new value for member assessment requirements which now must be included in Chair’s Statements. Currently, when you assess the value provided by a scheme you are restricted to comparisons to schemes with a similar charging structure. A standardised universal charging system will make things easier and go a long way to opening up the market and enhancing choice and transparency.”
Aegon head of pension Kate Smith says: “We’re empathetic with the Government’s wish to ensure that auto-enrolment small pension pots aren’t wiped out by flat fees, making sure that every penny saved counts. However, a pot of £100 will make no difference to income in retirement making this more of a symbolic gesture rather than a genuine way to improve members’ retirement outcomes. A far better way of improving member outcomes would be to join this up with the joint industry / government initiative looking at small pots solutions, rather than advancing this as a standalone policy. Removing the flat fee for pots of £100 or less creates a barrier to small pot consolidation, as the new scheme’s charges are likely to be higher once the flat fee has been cancelled.
“We believe the proposal to move universally to a per centage AMC charge could do serious damage to the pensions market, which is currently vibrant and competitive offering a range of propositions and employer choice with bespoke charging. Universal pension charging could encourage a race to the bottom in terms of charges and ‘vanilla’ pension propositions, with competition stifled, forcing some schemes to exit the market. All of this would be detrimental to member retirement outcomes.
“Employers are at the heart of auto-enrolment, and much of its success has been down to them. Any break with the link to the employer by forcing them to pay into a pension chosen by an employee introduces more costs and complexity and risks undermining the future success of auto-enrolment and workplace saving. It shouldn’t be forgotten that many employers contribute more than the auto-enrolment minimum and may be less likely to do this if they are forced to pay into a scheme which isn’t their workplace scheme, especially if it costs them more to do so.
“Employees already have the flexibility to manage their pension outside their employer’s auto-enrolment scheme by transferring funds already built up into their own Sipp of personal pension.”
